The inconvenient truth on termination of banker-customer relationships
12 July 2021
The case pertains to a claim made by the plaintiff, Aura Indah Jaya Sdn Bhd (“Aura Indah”), against the defendant, OCBC Bank (Malaysia) Bhd (“OCBC”) for the closure of Aura Indah’s bank accounts with OCBC and claimed for, amongst others, an order to re-open the bank accounts and for general damages. OCBC, in turn, filed an application to strike out the claim on the basis that, amongst others, the bank was entitled, pursuant to the terms and conditions agreed by the parties to close the bank accounts.
Terms & Conditions governing OCBC’s and Aura Indah’s relationship
In opening the bank accounts with OCBC, Aura Indah had, by signing the application forms for the accounts, agreed to be bound by OCBC’s Business Access-I Terms and Conditions (“BA-i Terms & Conditions”) and Accounts and Services – Main Terms and Conditions (“General Terms & Conditions”). Both the terms and conditions provided the bank the right to terminate a customer’s bank account:
- Clause 4.3 of the BA-i Terms & Conditions:
“The Bank reserves the right at its absolute discretion to withdraw, cancel, suspend, extend, or terminate BA/BA-i at any time in whole or in part, or to vary, delete or add to any of the terms and conditions herein at any time with prior notice, by way of posting on the Bank’s website at (www.ocbc.com.my), or in any other method deemed appropriate by the Bank. Each customer agrees to access the Bank’s website stated herein at regular time intervals to view the terms and conditions herein and to ensure that the customer is kept up-to-date with any changes or variations to these terms and conditions. The customers shall not be entitled to claim for any compensation against the Bank for any and all loss and damage howsoever suffered or incurred by the customers, whether as a direct or indirect result of any withdrawal, cancellation, suspension, extension or termination of BA/BA-i or any variation, deletion or addition to any of the terms and condition herein.”
- Clause 12 of the General Terms & Conditions:
“12. Closing Of Accounts & Termination Of The Services
12.2 The Bank may close any of the Account or terminate the Services:
(a) If the Bank believes or suspects that the Account is used for money laundering or other fraudulent or illegal schemes or in breach of any guidelines or rules issued by Bank Negara Malaysia or any other authority;
(b) If the Bank in good faith doubts the authority or authenticity of any instructions;
(c) If there are changes in the name, constitution, composition, or dissolution of the Customer due to retirement, resignation, incapacity, bankruptcy, winding-up, insolvency or otherwise; or
(d) If there is a dispute in relation to any of the Accounts.
12.3 The Customer may terminate the Account or suspend or terminate the utilisation of any of the Services by giving written notice to the Bank. For a corporate Customer, the notice period to terminate the Account or utilisation of any of the Services shall be at least 30 days. The Bank may also close the Account or suspend or terminate any or all of the Services by giving notice to the Customer. Upon closure of the Account, all unused cheque book/leaf shall be returned to the Bank.”
Basis of Termination by OCBC
The basis of the OCBC’s termination of the bank accounts in this case were purely based on the inconveniences that arose from Aura Indah’s banking conduct – they had refused to utilise OCBC’s internet banking facility and chose to do over-the-counter transactions as well as the fact that OCBC had incurred substantial time and costs in seeking confirmation from the authorised contact person for each transaction. Aura Indah’s sole authorised contact person was overseas and mostly uncontactable.
The termination was packaged as a ‘commercial decision’ by OCBC and was accordingly communicated to Aura Indah.
Aura Indah’s position on the closure of the bank accounts
In objecting to OCBC’s striking out application, Aura Indah took the position that OCBC’s General Terms and Conditions provided that the closure of the bank accounts was only permitted under four specific events under the General Terms & Conditions and that, amongst others, Clause 12.2 and Clause 12.3 of the General Terms & Conditions were inconsistent with each other and that if Clause 12.3 was read in isolation, Clause 12.2 would be rendered redundant; as such Clause 12.3 must be confined to the grounds set out in Clause 12.2 which would render OCBC’s ‘commercial decision’ for termination unlawful.
The High Court had rejected Aura Indah’s argument in its entirety and held that the clauses were unambiguous and clear – the clauses in both terms and conditions, in their ordinary and natural meaning, entitled OCBC to close the bank accounts without giving any reason for the termination. The Learned High Court Judge posited her decision on trite principles under contract law, i.e. that there is no duty under general law to give reasons when terminating a contract, unless the contract itself stipulates the grounds for valid termination (See: SPM Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor  1 CLJ 177) and banking principles, in that adequate notice must be given to the customer for termination and that unless the contract specifically provides otherwise, the bank does not need to have or give a good reason to terminate (See: Paget’s Law of Bankning, 15th edn.). The intimation of the ‘commercial decision’ to Aura Indah was wholly unnecessary on OCBC’s part.
This case is a positive affirmation on the banker’s rights in instances of termination of a banker-customer relationship – it is clear that banks are entitled to terminate a relationship with a customer at its discretion and do not need to provide its reasons for the termination, as long as the contract between the banker and customer do not stipulate otherwise. This decision also provides a timely reminder for bankers to review their existing terms and conditions to ensure that their clauses on termination (and more!) are drafted in a clear and unambiguous manner to ensure that their rights are properly preserved and upheld in Court.
This article was prepared by partner, Wong Chee Lin, and senior associate, Annjili Gunendran.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such.